**FORM 10-Q**

 

**UnitedStatesSecurities and Exchange Commission**

**Washington,D. C. 20549**

 

**(MarkOne)**

 

| ** ** | **x** | **Quarterly  Report Pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934** | ** ** |
|------------|-------|-----------------------------------------------------------------------------------------------|------------|

 

**For thequarterly period ended: August 31, 2007**

** **

**OR**

 

| ** ** | **o** | **Transition  Report Pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934** | ** ** |
|------------|-------|------------------------------------------------------------------------------------------------|------------|

 

**CommissionFile Number: 0-14820**

 

**IMMUCOR, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Georgia**                                                                    | ** ** | **22-2408354**       |
|--------------------------------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                                               |       | (I.R.S. Employer     |
| incorporation or  organization)                                                |       | Identification  No.) |
|                                                                           |       |                 |
| **3130  Gateway Drive  P.O. Box 5625  Norcross, Georgia 30091-5625** |
| (Address of  principal executive offices) (Zip Code)                      |

 

Registrant’stelephone number:  **(770)441-2051**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes x        No o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (Check one):

 

| Large accelerated filer  x | Accelerated filer o | Non-accelerated filer o |
|----------------------------|---------------------|-------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 

Yes o      No x

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

# As of September30, 2007: Common Stock, $0.10 Par Value – 69,945,438

 

 

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**IMMUCOR,INC. AND SUBSIDIARIES**

 

**FORM10-Q**

 

**INDEX**

 
| **PART I.  FINANCIAL  INFORMATION** |                                                                                                                                                     |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                                                     |   |
| **Item 1.**                              | **Financial Statements**                                                                                                                                 |   |
|                                     |                                                                                                                                                     |   |
|                                     | Condensed  Consolidated Balance Sheets as of August 31, 2007 (unaudited) and May 31,  2007                                                               |   |
|                                     |                                                                                                                                                     |   |
|                                     | Condensed  Consolidated Statements of Income for the three months ended August 31, 2007  and 2006 (unaudited)                                            |   |
|                                     |                                                                                                                                                     |   |
|                                     | Condensed  Consolidated Statement of Shareholders’ Equity and Comprehensive Income for  the period June 1, 2007 through August 31, 2007 (unaudited) |   |
|                                     |                                                                                                                                                     |   |
|                                     | Condensed  Consolidated Statements of Cash Flows for the three months ended August 31,  2007 and 2006 (unaudited)                                        |   |
|                                     |                                                                                                                                                     |   |
|                                     | Notes to  Condensed Consolidated Financial Statements (unaudited)                                                                                        |   |
|                                     |                                                                                                                                                     |   |
| **Item 2.**                              | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations**                                                          |   |
|                                     |                                                                                                                                                     |   |
| **Item 3.**                              | **Quantitative  and Qualitative Disclosures about Market Risk**                                                                                          |   |
|                                     |                                                                                                                                                     |   |
| **Item 4.**                              | **Controls and  Procedures**                                                                                                                             |   |
|                                     |                                                                                                                                                     |   |
| **PART II.  OTHER INFORMATION**     |                                                                                                                                                     |
|                                     |                                                                                                                                                     |   |
| **Item 1.**                              | **Legal Proceedings**                                                                                                                                    |   |
|                                     |                                                                                                                                                     |   |
| **Item 1A.**                             | **Risk Factors**                                                                                                                                         |   |
|                                     |                                                                                                                                                     |   |
| **Item 2.**                              | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                                                                         |   |
|                                     |                                                                                                                                                     |   |
| **Item 6.**                              | **Exhibits**                                                                                                                                             |   |
|                                     |                                                                                                                                                     |   |
|                                     | SIGNATURES                                                                                                                                               |   |

 

2

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**PART I**

**FINANCIAL INFORMATION**

 

**ITEM 1.Financial Statements**

 

**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(Amountsin thousands, except share data)

 
| ** **                                                                                                                                                                | ** ** | **August 31, 2007** | ** ** | **May 31, 2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                | ** ** | **(Unaudited)**               | ** ** | ** **                 | ** ** |
| **ASSETS**                                                                                                                                                                |       |                          |       |                       |       |
| ** **                                                                                                                                                                |       |                          |       |                       |       |
| CURRENT ASSETS:                                                                                                                                                           |       |                          |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                |       | $                             | 124,778    |                       | $          | 113,551 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $1,773 at August 31,  2007 and $1,726 at May 31, 2007                                               |       | 50,309                        |       | 47,768                     |       |
| Inventories                                                                                                                                                               |       | 34,578                        |       | 29,320                     |       |
| Deferred income  tax assets, current portion                                                                                                                              |       | 3,621                         |       | 3,614                      |       |
| Prepaid expenses  and other current assets                                                                                                                                |       | 6,089                         |       | 5,567                      |       |
| Total current  assets                                                                                                                                                     |       | 219,375                       |       | 199,820                    |       |
|                                                                                                                                                                      |       |                          |       |                       |       |
| PROPERTY AND  EQUIPMENT, Net                                                                                                                                              |       | 32,024                        |       | 30,245                     |       |
| GOODWILL                                                                                                                                                                  |       | 35,159                        |       | 34,763                     |       |
| OTHER INTANGIBLE  ASSETS, Net                                                                                                                                             |       | 5,870                         |       | 5,719                      |       |
| DEFERRED INCOME  TAX ASSETS                                                                                                                                               |       | 6,782                         |       | 4,225                      |       |
| OTHER ASSETS                                                                                                                                                              |       | 716                           |       | 706                        |       |
| Total assets                                                                                                                                                              |       | $                             | 299,926    |                       | $          | 275,478 |   |
|                                                                                                                                                                      |       |                          |       |                       |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                            |       |                          |       |                       |       |
| ** **                                                                                                                                                                |       |                          |       |                       |       |
| CURRENT  LIABILITIES:                                                                                                                                                     |       |                          |       |                       |       |
| Accounts payable                                                                                                                                                          |       | $                             | 7,640      |                       | $          | 8,056 |   |
| Accrued expenses  and other current liabilities                                                                                                                           |       | 12,501                        |       | 14,055                     |       |
| Income taxes  payable                                                                                                                                                     |       | 11,624                        |       | 7,180                      |       |
| Deferred  revenue, current portion                                                                                                                                        |       | 8,810                         |       | 7,321                      |       |
| Current portion  of acquisition liability                                                                                                                                 |       | 3,955                         |       | 343                        |       |
| Total current  liabilities                                                                                                                                                |       | 44,530                        |       | 36,955                     |       |
|                                                                                                                                                                      |       |                          |       |                       |       |
| ACQUISITION  LIABILITY                                                                                                                                                    |       | —                        |       | 3,488                      |       |
| DEFERRED REVENUE                                                                                                                                                          |       | 12,542                        |       | 12,361                     |       |
| DEFERRED INCOME  TAX LIABILITIES                                                                                                                                          |       | 1,271                         |       | 1,275                      |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                                                              |       | 1,961                         |       | 1,951                      |       |
| Total  liabilities                                                                                                                                                        |       | 60,304                        |       | 56,030                     |       |
| COMMITMENTS AND  CONTINGENCIES (Note 10)                                                                                                                                  |       |                          |       |                       |       |
| SHAREHOLDERS’  EQUITY:                                                                                                                                               |       |                          |       |                       |       |
| Common stock,  $0.10 par value; authorized 120,000,000 shares, issued and outstanding 69,922,263  and 69,086,652 shares at August 31, 2007 and May 31, 2007, respectively |       | 6,992                         |       | 6,909                      |       |
| Additional  paid-in capital                                                                                                                                               |       | 30,209                        |       | 29,076                     |       |
| Retained  earnings                                                                                                                                                        |       | 197,355                       |       | 179,768                    |       |
| Accumulated  other comprehensive income                                                                                                                                   |       | 5,066                         |       | 3,695                      |       |
| Total  shareholders’ equity                                                                                                                                          |       | 239,622                       |       | 219,448                    |       |
| Total  liabilities and shareholders’ equity                                                                                                                          |       | $                             | 299,926    |                       | $          | 275,478 |   |

 

The accompanying notes are anintegral part of these Condensed Consolidated Financial Statements.

 

3

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**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF INCOME**

(Amountsin thousands, except per share data)

(Unaudited)

 
| ** **                        | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **August 31,**              | ** ** | **August 31,** | ** ** |
| ** **                        | ** ** | **2007**                         | ** ** | **2006** | ** ** |
|                              |       |                             |       |   |   |
| NET SALES                         |       | $                                | 63,632     |   | $ | 51,040 |   |
| COST OF SALES                     |       | 17,751                           |       | 16,504 |   |
| GROSS PROFIT                      |       | 45,881                           |       | 34,536 |   |
|                              |       |                             |       |   |   |
| OPERATING  EXPENSES:              |       |                             |       |   |   |
| Research and  development         |       | 2,055                            |       | 1,226 |   |
| Selling and  marketing            |       | 7,569                            |       | 5,559 |   |
| Distribution                      |       | 2,684                            |       | 2,288 |   |
| General and  administrative       |       | 5,880                            |       | 5,222 |   |
| Restructuring  expense            |       | 531                              |       | 387 |   |
| Amortization  expense and other   |       | 86                               |       | 87 |   |
| Total operating  expenses         |       | 18,805                           |       | 14,769 |   |
|                              |       |                             |       |   |   |
| INCOME FROM  OPERATIONS           |       | 27,076                           |       | 19,767 |   |
|                              |       |                             |       |   |   |
| NON-OPERATING  INCOME (EXPENSES): |       |                             |       |   |   |
| Interest income                   |       | 1,113                            |       | 518 |   |
| Interest expense                  |       | (95                              | )          | (117 | ) |
| Other, net                        |       | (182                             | )          | (61 | ) |
| Total  non-operating income       |       | 836                              |       | 340 |   |
|                              |       |                             |       |   |   |
| INCOME BEFORE  INCOME TAXES       |       | 27,912                           |       | 20,107 |   |
| PROVISION FOR  INCOME TAXES       |       | 10,162                           |       | 7,374 |   |
| NET INCOME                        |       | $                                | 17,750     |   | $ | 12,733 |   |
|                              |       |                             |       |   |   |
| Earnings per  share:              |       |                             |       |   |   |
| Per common share  - basic         |       | $                                | 0.26       |   | $ | 0.19 |   |
| Per common share  - diluted       |       | $                                | 0.25       |   | $ | 0.18 |   |

 

The accompanying notes arean integral part of these Condensed Consolidated Financial Statements.

 

4

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**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’EQUITY AND COMPREHENSIVE INCOME**

(Unaudited,amounts in thousands)

 
| ** **                                        | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|-------------------|------------|------------------------|------------|------------|------------|
| ** **                                        | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Other**              | ** ** | **Total**  | ** ** |
| ** **                                        | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | **Shareholders’** | ** ** |
| ** **                                        | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Income***            | ** ** | **Equity** | ** ** |
|                                              |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| BALANCE, MAY 31,  2007, as previosly reported     |       | 69,087                |       | $           | 6,909      |           | $          | 29,076            |       | $                      | 179,768    |       | $          | 3,695 |   | $ | 219,448 |   |
| Adjustment to  adopt FIN 48 (see Note 7)          |       |                  |       |        |       |           |       | (163              | )          |                   |       | (163       | )          |
| BALANCE, MAY 31,  2007, restated                  |       | 69,087                |       | 6,909       |       | 29,076         |       | 179,605           |       | 3,695                  |       | 219,285    |       |
| Shares issued  under employee stock plans         |       | 1,061                 |       | 106         |       | 1,810          |       | —            |       | —                 |       | 1,916      |       |
| Share-based  compensation expense                 |       | —                |       | —      |       | 991            |       | —            |       | —                 |       | 991        |       |
| Stock  repurchases and retirements                |       | (226                  | )          | (23         | )          | (6,009         | )          | —            |       | —                 |       | (6,032     | )          |
| Tax benefits  related to share-based compensation |       | —                |       | —      |       | 4,341          |       | —            |       | —                 |       | 4,341      |       |
| Comprehensive  income:                            |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| Foreign currency  translation adjustments         |       | —                |       | —      |       | —         |       | —            |       | 1,371                  |       | 1,371      |       |
| Net income                                        |       | —                |       | —      |       | —         |       | 17,750            |       | —                 |       | 17,750     |       |
| Total  comprehensive income                       |       |                  |       |        |       |           |       |              |       |                   |       | 19,121     |       |
|                                              |       |                  |       |        |       |           |       |              |       |                   |       |       |       |
| BALANCE, AUGUST  31, 2007                         |       | 69,922                |       | $           | 6,992      |           | $          | 30,209            |       | $                      | 197,355    |       | $          | 5,066 |   | $ | 239,622 |   |

 

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*Accumulated OtherComprehensive Income balance primarily consists of foreign currency translationadjustments and has no tax effect.

 

The accompanying notes are anintegral part of these Condensed Consolidated Financial Statements.

 

5

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**IMMUCOR, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

(Unaudited,amounts in thousands)

 
| ** **                                                                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **August 31,**              | ** ** | **August 31,** | ** ** |
| ** **                                                                         | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| OPERATING  ACTIVITIES:                                                             |       |                             |       |   |   |
| Net income                                                                         |       | $                                | 17,750     |   | $ | 12,733 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                     |       | 1,893                            |       | 1,553 |   |
| Accretion of  acquisition liabilities                                              |       | 44                               |       | 46 |   |
| Loss on  retirement of fixed assets                                                |       | 1                                |       | 69 |   |
| Provision for  doubtful accounts                                                   |       | 159                              |       | (217 | ) |
| Share-based  compensation expense                                                  |       | 991                              |       | 708 |   |
| Deferred income  taxes                                                             |       | (702                             | )          | (12 | ) |
| Excess tax  benefit from share-based compensation                                  |       | (4,341                           | )          | (356 | ) |
| Changes in  operating assets and liabilities:                                      |       |                             |       |   |   |
| Accounts  receivable, trade                                                        |       | (2,311                           | )          | (522 | ) |
| Income taxes                                                                       |       | 6,613                            |       | 4,821 |   |
| Inventories                                                                        |       | (5,072                           | )          | (1,161 | ) |
| Other current  assets                                                              |       | (911                             | )          | 1,589 |   |
| Other long-term  assets                                                            |       | (8                               | )          | 28 |   |
| Accounts payable                                                                   |       | (441                             | )          | 128 |   |
| Deferred revenue                                                                   |       | 1,632                            |       | 1,050 |   |
| Accrued expenses  and other current liabilities                                    |       | (1,661                           | )          | 354 |   |
| Other long-term  liabilities                                                       |       | —                           |       | 259 |   |
| Cash provided by  operating activities                                             |       | 13,636                           |       | 21,070 |   |
|                                                                               |       |                             |       |   |   |
| INVESTING  ACTIVITIES:                                                             |       |                             |       |   |   |
| Purchases of  property and equipment                                               |       | (2,939                           | )          | (1,780 | ) |
| Proceeds from  short-term investments, net                                         |       | —                           |       | 992 |   |
| Cash used in  investing activities                                                 |       | (2,939                           | )          | (788 | ) |
|                                                                               |       |                             |       |   |   |
| FINANCING  ACTIVITIES:                                                             |       |                             |       |   |   |
| Repayments of  long-term debt and liabilities                                      |       | (143                             | )          | (90 | ) |
| Repurchase of  common stock                                                        |       | (5,534                           | )          | (4,872 | ) |
| Proceeds from  exercise of stock options                                           |       | 1,470                            |       | 207 |   |
| Excess tax  benefit from share-based compensation                                  |       | 4,341                            |       | 356 |   |
| Cash provided by  (used in) financing activities                                   |       | 134                              |       | (4,399 | ) |
|                                                                               |       |                             |       |   |   |
| EFFECT OF  EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                             |       | 396                              |       | (225 | ) |
| INCREASE IN CASH  AND CASH EQUIVALENTS                                             |       | 11,227                           |       | 15,658 |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                  |       | 113,551                          |       | 54,103 |   |
| CASH AND CASH  EQUIVALENTS AT END OF PERIOD                                        |       | $                                | 124,778    |   | $ | 69,761 |   |
|                                                                               |       |                             |       |   |   |
| SUPPLEMENTAL  INFORMATION:                                                         |       |                             |       |   |   |
| Tax paid                                                                           |       | $                                | 4,232      |   | $ | 1,833 |   |
| Interest paid                                                                      |       | 41                               |       | 63 |   |
| NON-CASH  INVESTING AND FINANCING ACTIVITIES:                                      |       |                             |       |   |   |
| Shares  surrendered for amounts due on stock options excercised                    |       | $                                | 498        |   | $ | — |   |

 

The accompanying notes are anintegral part of these Condensed Consolidated Financial Statements.

 

6

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** **

**IMMUCOR,INC. AND SUBSIDIARIES**

**Notes to Condensed Consolidated FinancialStatements**

(Unaudited)

 

**1.****              NATURE OF BUSINESSAND BASIS OF PRESENTATION**

 

***Natureof Business***

Immucor, Inc. (“Immucor”and, together with its wholly owned subsidiaries, the “Company”) is in thebusiness of developing, manufacturing and marketing immunological diagnosticmedical products. The Company operates facilities in the United States, Canada,Europe and Japan. The unaudited condensed consolidated financial statementsinclude the accounts of the Company and all of its subsidiaries.

 

***Basisof Presentation***

The accompanyingcondensed consolidated financial statements are unaudited and have beenprepared in accordance with U.S. generally accepted accounting principles (“U.S.GAAP”) for interim financial information, and the Securities and ExchangeCommission’s (“SEC”) instructions for Form 10-Q and Article 10 of RegulationS-X. Accordingly, they do not include all of the information and footnotesrequired by U.S. GAAP for complete financial statements. In the opinion ofmanagement, all adjustments, consisting of normal recurring adjustments, unlessotherwise disclosed in a separate note, considered necessary for a fairpresentation of the unaudited condensed consolidated financial statements havebeen recorded in the interim periods presented. These unaudited, condensedconsolidated financial statements should be read in conjunction with theCompany’s audited, consolidated financial statements and related notes for theyear ended May 31, 2007, included in the Company’s Annual Report on Form 10-K.

 

The accompanyingcondensed consolidated financial statements present results of operations forthe three months ended August 31, 2007. These results are not necessarilyindicative of the results that may be achieved for the year ending May 31,2008, or any other period.

 

***Basisof Consolidation***

The condensedconsolidated financial statements include the accounts of Immucor and all itssubsidiaries. All significant inter-company balances and transactions have beeneliminated in consolidation.

 

**2.****              INVENTORIES**

 

Inventories are stated atthe lower of cost (first-in, first-out basis) or market (net realizable value):

 
| ** **                  | ** ** | **August 31, 2007** | ** ** | **May 31, 2007** | ** ** |
|-----------------------------|------------|-------------------------------|------------|----------------------------|------------|
| ** **                  | ** ** | **(in thousands)**       | ** ** |
|                        |       |                          |       |                       |       |
| Raw materials  and supplies |       | $                             | 7,151      |                       | $          | 6,364 |   |
| Work in process             |       | 4,415                         |       | 4,829                      |       |
| Finished goods              |       | 23,012                        |       | 18,127                     |       |
|                        |       | $                             | 34,578     |                       | $          | 29,320 |   |

 

**3.****              SHAREHOLDERS’ EQUITY**

 

During the quarter endedAugust 31, 2007, the Company either withheld from certain option exercises orreacquired from certain restricted stock holders an aggregate of 206,787 sharesvalued at $5.5 million in compliance with the statutory tax withholdingrequirements. The Company retired these shares and disclosed their value as ‘Stockrepurchases and retirements’ in the condensed consolidated statement ofshareholders’ equity and comprehensive income and as ‘Repurchase of commonstock’ under financing activities in the condensed consolidated statements ofcash flows.

 

The Company also withheld18,609 shares valued at $0.5 million from an employee who exercised options andelected to pay the option exercise price by having shares withheld. Theseshares were also retired and their values were disclosed as ‘Stock repurchasesand retirements’ in the condensed consolidated statement of

 

7

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shareholders’ equity andcomprehensive income and as ‘Non-cash investing and financing activities’ inthe condensed consolidated statements of cash flows.

 

The shares acquired infiscal 2008 were returned to the status of authorized, but unissued shares.

 

**4.****              STOCK REPURCHASEPROGRAM**

 

The Company instituted a stock repurchase program inJune 1998 for up to 6,075,000 shares of its common stock. On June 1, 2004,August 2, 2004 and December 13, 2005, the Board of Directors authorized theCompany to repurchase up to an additional 675,000, 1,125,000 and 1.5 millionshares, respectively.

 

During the quarter endedAugust 31, 2007, the Company did not make any repurchases in the open marketunder the 1998 repurchase program. During the quarter ended August 31, 2006,281,969 shares were repurchased for $4.9 million. As of August 31, 2007,8,232,944 shares had been repurchased under the program, leaving 1,142,056shares available for repurchase.

 

The shares repurchased in fiscal 2007 were returned tothe status of authorized, but unissued shares.

 

**5.****              SHARE-BASEDCOMPENSATION**

 

*Plansummary*

 

The Immucor, Inc. 2005Long-Term Incentive Plan (the “2005 Plan”) was the only active plan during thefirst quarter of fiscal 2008. Under the 2005 Plan, management is able to awardstock options, stock appreciation rights, restricted stock, deferred stock, andother performance-based awards as incentive and compensation to employees. Themaximum number of shares of the Company’s common stock as to which awards maybe granted under the 2005 Plan is 3,600,000. The maximum number of shares thatmay be used for awards other than stock options is 1,800,000, and the maximumnumber of shares that may be used for grants of incentive stock options is1,800,000. Options are granted at the closing market price on the date of thegrant. Option awards generally vest equally over a four-year period and have asix-year contractual term. Restricted stock awards generally vest equally overa five-year period. The 2005 Plan provides for accelerated vesting of optionand restricted stock awards if there is a change in control, as defined in the2005 Plan.

 

*Valuationmethod used and assumptions*

 

The fair value of eachoption grant in the first quarter of fiscal years 2008 and 2007 was estimatedon the date of grant using the Black-Scholes option-pricing model with thefollowing weighted-average assumptions:

 
| ** **                   | ** ** | **Three Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **August 31, 2007**    | ** ** | **August 31, 2006** | ** ** |
| Risk-free  interest rate (1) |       | 5.06                             | %          | 4.95 | % |
| Expected  volatility (2)     |       | 40.26                            | %          | 41.55 | % |
| Expected life  (years) (3)   |       | 4.25                             |       | 4.25 |   |
| Expected  dividend yield (4) |       | —                           |       | — |   |

 

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(1)           Basedon the U.S. Treasury yield curve in effect at the time of grant.

(2)           Expectedstock price volatility is based on the average historical volatility of theCompany’s shares during the period corresponding to the expected life of theoptions.

(3)           Representsthe period of time options are expected to remain outstanding. The weightedaverage expected option term was determined using the “simplified method” asallowed by Staff Accounting Bulletin No. 107. The “simplified method”calculates the expected term as the average of the vesting term and originalcontractual term of the options.

(4)           TheCompany has not paid dividends on its common stock and does not expect to paydividends on its common stock in the near future.

 

8

----

 

*Impact ofadoption of SFAS 123R*

 

On adoption of Statementof Financial Accounting Standard No. 123R, *Share-Based Payment*(“SFAS 123R”) as of June 1, 2006, the unrecognized compensation expenseassociated with the remaining portion of the unvested outstanding awards was$4.5 million ($2.9 million, net of taxes). This compensation expense isexpected to be recognized through May 2010 on a straight-line basis over theweighted-average vesting period of approximately 1.75 years.

 

Total share-basedcompensation expense included in the condensed consolidated statements ofincome for the three-month periods ended August 31, 2007 and August 31, 2006was $1.0 million ($0.7 million, net of taxes), and $0.7 million ($0.5 million,net of taxes), respectively. The impact on basic and diluted earnings per sharewas a reduction by $0.01 per share for each of the three-month periods endedAugust 31, 2007 and August 31, 2006.

 

*Stockoption activity*

 

The options granted underthe 2005 Plan during the first quarter ended August 31, 2007 have a six-yearterm with vesting of 25% at the end of each of the first four years; therestricted shares vest 20% at each anniversary of the issuance date. Compensationcosts for stock options with tiered vesting terms are recognized evenly overthe vesting periods.

 

The following is asummary of the changes in outstanding options for the first quarter of fiscalyear 2008 ended August 31, 2007:

 
| ** **                                             | ** ** | ** **         | ** ** | ** **              | ** ** | **Weighted**          | ** ** | ** **               | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------------|------------|--------------------------|------------|
| ** **                                             | ** ** | ** **         | ** ** | ** **              | ** ** | **Average**           | ** ** | ** **               | ** ** |
| ** **                                             | ** ** | ** **         | ** ** | **Weighted**            | ** ** | **Remaining**         | ** ** | **Aggregate**            | ** ** |
| ** **                                             | ** ** | **Number of** | ** ** | **Average**             | ** ** | **Contractual**       | ** ** | **Intrinsic Value** | ** ** |
| ** **                                             | ** ** | **Shares**         | ** ** | **Exercise Price** | ** ** | **Life (years)** | ** ** | **(1)**                  | ** ** |
| ** **                                             | ** ** | ** **         | ** ** | ** **              | ** ** | ** **            | ** ** | **(in thousands)**  | ** ** |
| Outstanding at  May 31, 2007                           |       | 3,570,914          |       | $                       | 5.63       |                  |       |                     |       |   |
| Granted                                                |       | 424,736            |       | $                       | 29.23      |                  |       |                     |       |   |
| Exercised                                              |       | (1,038,489         | )          | $                       | 1.85       |                  |       |                     |       |   |
| Forfeited                                              |       | (9,141             | )          | $                       | 20.44      |                  |       |                     |       |   |
| Expired                                                |       | (223,605           | )          | $                       | 1.21       |                  |       |                     |       |   |
| Outstanding at  August 31, 2007                        |       | 2,724,415          |       | $                       | 11.07      |                  | 5.5        |                     | $          | 60,712 |   |
|                                                   |       |               |       |                    |       |                  |       |                     |       |
| Exercisable at  August 31, 2007                        |       | 1,779,615          |       | $                       | 5.98       |                  | 5.1        |                     | $          | 48,710 |   |
|                                                   |       |               |       |                    |       |                  |       |                     |       |
| Shares available  for future grants at August 31, 2007 |       | 1,080,225          |       |                    |       |                  |       |                     |       |

 

----

(1)         Theaggregate intrinsic value in the above table represents the total pre-taxintrinsic value (the difference between the Company’s closing stock price onthe last trading day of the quarter and the exercise price, multiplied by thenumber of options).

 

(2)         Theweighted-average grant-date fair value of share options granted during thefirst three months of fiscal years 2008 and 2007 was $11.59 and $7.08,respectively. The total intrinsic value of share options exercised during thefirst three months of fiscal years 2008 and 2007 was $28.4 million and $1.1million, respectively.

 

*Restrictedstock activity*

 

The Company awardedrestricted shares for the first time on June 6, 2006. The following is asummary of the changes in nonvested restricted stock for the first quarter offiscal year 2008 ended August 31, 2007:

 

9

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| ** **                                             | ** ** | ** **                     | ** ** | **Weighted-Average**     | ** ** |
|--------------------------------------------------------|------------|--------------------------------|------------|--------------------------|------------|
| ** **                                             | ** ** | ** **                     | ** ** | **Grant-Date Fair** | ** ** |
| ** **                                             | ** ** | **Number of Shares** | ** ** | **Value**                | ** ** |
| Nonvested stock  outstanding at May 31, 2007           |       | 112,590                        |       | $                        | 17.51      |   |
| Granted                                                |       | 48,055                         |       | 29.23                    |       |
| Vested                                                 |       | (22,518                        | )          | 17.51                    |       |
| Forfeited                                              |       | (1,360                         | )          | —                   |       |
| Nonvested stock  outstanding at August 31, 2007        |       | 136,767                        |       | $                        | 21.63      |   |
|                                                   |       |                           |       |                     |       |
| Shares available  for future grants at August 31, 2007 |       | 1,630,800                      |       |                     |       |

 

As of August 31, 2007,there was $9.8 million of total unrecognized compensation cost related tononvested share-based compensation arrangements. This compensation cost isexpected to be recognized through June 8, 2012, based on existing vesting termswith the weighted average remaining expense recognition period beingapproximately 3.39 years from August 31, 2007.

 

**6.****              COMPREHENSIVE INCOME**

 

The components of comprehensive income for thethree-month periods ended August 31, 2007 and 2006 are as follows (inthousands):

 
| ** **                                    | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **August 31,**              | ** ** | **August 31,** | ** ** |
| ** **                                    | ** ** | **2007**                         | ** ** | **2006** | ** ** |
|                                          |       |                             |       |   |   |
| Net income                                    |       | $                                | 17,750     |   | $ | 12,733 |   |
| Net foreign  currency translation adjustments |       | 1,371                            |       | (738 | ) |
| Comprehensive  income                         |       | $                                | 19,121     |   | $ | 11,995 |   |

 

No tax effect is recordedfor foreign currency translation adjustments as the foreign net assetstranslated are deemed permanently invested.

 

**7.****              INCOME TAXES**

 

The Company adopted theprovisions of Financial Interpretation No. 48, “*Accountingfor Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109*”(“FIN 48”) on June 1, 2007. The cumulative effect of implementation of FIN 48is a $0.2 million increase in the liability for unrecognized tax benefits,which will be accounted for as a decrease in the May 31, 2007 balance ofretained earnings. As of the adoption date, we had gross unrecognized tax benefitsof $5.1 million, which was accounted for as follows (in thousands):

 
| Reduction in  Retained Earnings (cumulative effect) |   | $ | 163   |   |
|-----------------------------------------------------|--------|---|-------|--------|
| Additional  Deferred Tax Assets                     |   | $ | 1,745 |   |
| FAS 5 Reserve  Reduction                            |   | $ | 3,222 |   |
| Increase in  Liability                              |   | $ | 5,130 |   |

 

The total balance ofunrecognized tax benefits that would affect the effective tax rate, ifrecognized, is $3.4 million. We do not currently anticipate that the totalamount of unrecognized tax benefits will significantly increase or decreaseduring the twelve month period ending August 31, 2008.

 

The Company recognizesinterest and penalties accrued related to unrecognized tax benefits in incometax expense. Upon adoption of FIN 48 on June 1, 2007, the Company recognized$1.0 million of gross accrued interest expense. The company has not recognizedany accrued penalties upon adoption of FIN 48.

 

The Company is subject totaxation in the U.S. and various states and foreign jurisdictions. The Company’stax years for the fiscal years ended May 31, 2004, May 31, 2005, and May 31,2006 are subject to examination by the tax authorities.

 

10

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With few exceptions, theCompany is no longer subject to U.S. federal, state, local or foreignexaminations by tax authorities for years before the fiscal year ended May 31,2004.

 

**8.****              EARNINGS PER SHARE**

 

The following table sets forth the computation ofbasic and diluted earnings per share in accordance with Statement of FinancialAccounting Standard No. 128, *Earnings per Share*.

 

Basic earnings per common share are calculated bydividing net income by weighted-average common shares outstanding during theperiod. Diluted earnings per common share are calculated by dividing net incomeby weighted-average common shares outstanding during the period plus dilutivepotential common shares, which are determined as follows (in thousands, exceptper share data):

 
| ** **                                                                           | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                           | ** ** | **August 31,**              | ** ** | **August 31,** | ** ** |
| ** **                                                                           | ** ** | **2007**                         | ** ** | **2006** | ** ** |
|                                                                                 |       |                             |       |   |   |
| Numerator for  basic and diluted earnings per share:                                 |       |                             |       |   |   |
| Net Income                                                                           |       | $                                | 17,750     |   | $ | 12,733 |   |
|                                                                                 |       |                             |       |   |   |
| Denominator:                                                                         |       |                             |       |   |   |
| For basic  earnings per share  - weighted average shares basis                       |       | 69,435                           |       | 67,701 |   |
| Effect of  dilutive stock options and restricted stock                               |       | 1,638                            |       | 2,488 |   |
| Denominator for  diluted earnings per share  -adjusted weighted average shares basis |       | 71,073                           |       | 70,189 |   |
|                                                                                 |       |                             |       |   |   |
| Earnings per  common share – basic                                              |       | $                                | 0.26       |   | $ | 0.19 |   |
| Earnings per  common share – diluted                                            |       | $                                | 0.25       |   | $ | 0.18 |   |

 

The effect of 45,423 and377,546 out-of-the-money options for the quarter ended August 31, 2007 andAugust 31, 2006, respectively, was excluded from the above calculation asinclusion of these securities would be anti-dilutive.

 

 

**9.****              SEGMENT ANDGEOGRAPHIC INFORMATION**

 

The Company’s operations and segments are organizedaround geographic areas. Immucor’s “Other” segment includes the operations ofBelgium, Portugal and Spain. The foreign locations principally function asdistributors of products developed and manufactured by the Company in theUnited States and Canada. The accounting policies applied in the preparation ofthe Company’s consolidated financial statements are applied consistently acrossthe segments. Intersegment sales are recorded at market price and areeliminated in consolidation.

 

##### **Segment information for the three-monthperiods ended August 31, 2007 and 2006 is summarized below (in thousands).**

 

11

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| ** **                      | ** ** | **For the Three Months Ended August 31, 2007** | ** ** |
|---------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                      | ** ** | **U.S.**                                                                          | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Traditional  reagent revenues:  |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers         |       | $                                                                                 | 35,297     |   | $ | 1,927 |   | $ | 2,175 |   | $ | 2,314 |   | $ | 1,830 |   | $ | 1,534 |   | $ | — |   | $ | 45,077 |   |
| Affiliates                      |       | 1,596                                                                             |       | 1,018 |   | — |   | 69 |   | — |   | 5 |   | (2,688 | ) | — |   |
| Total                           |       | 36,893                                                                            |       | 2,945 |   | 2,175 |   | 2,383 |   | 1,830 |   | 1,539 |   | (2,688 | ) | 45,077 |   |
| Capture reagent  revenues:      |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers         |       | 7,548                                                                             |       | 934 |   | 1,534 |   | 620 |   | 98 |   | 1,206 |   | — |   | 11,940 |   |
| Affiliates                      |       | 1,696                                                                             |       | 552 |   | — |   | — |   | — |   | — |   | (2,248 | ) | — |   |
| Total                           |       | 9,244                                                                             |       | 1,486 |   | 1,534 |   | 620 |   | 98 |   | 1,206 |   | (2,248 | ) | 11,940 |   |
| Net instrument  revenues:       |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers         |       | 2,908                                                                             |       | 864 |   | 670 |   | 233 |   | 95 |   | 338 |   | — |   | 5,108 |   |
| Affiliates                      |       | 656                                                                               |       | 896 |   | — |   | — |   | — |   | — |   | (1,552 | ) | — |   |
| Total                           |       | 3,564                                                                             |       | 1,760 |   | 670 |   | 233 |   | 95 |   | 338 |   | (1,552 | ) | 5,108 |   |
| Net collagen  revenues:         |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers         |       | 1,507                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,507 |   |
| Affiliates                      |       | —                                                                            |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                           |       | 1,507                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,507 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                       |       | 51,208                                                                            |       | 6,191 |   | 4,379 |   | 3,236 |   | 2,023 |   | 3,083 |   | (6,488 | ) | 63,632 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations  |       | 24,961                                                                            |       | 96 |   | 955 |   | 1,241 |   | (91 | ) | 248 |   | (334 | ) | 27,076 |   |
|                            |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                    |       | 961                                                                               |       | 177 |   | 333 |   | 53 |   | 48 |   | 236 |   | — |   | 1,808 |   |
| Amortization                    |       | 70                                                                                |       | — |   | — |   |   |   | 15 |   | — |   | — |   | 85 |   |
| Restructuring  expenses         |       | 531                                                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | 531 |   |
| Income tax  expense             |       | 9,231                                                                             |       | 34 |   | 536 |   | 473 |   | — |   | 11 |   | (123 | ) | 10,162 |   |
| Capital  expenditures           |       | 2,404                                                                             |       | 59 |   | 199 |   | 67 |   | 22 |   | 188 |   | — |   | 2,939 |   |
| Property &  equipment - net |       | 22,817                                                                            |       | 2,198 |   | 2,676 |   | 1,319 |   | 580 |   | 2,434 |   | — |   | 32,024 |   |
| Total assets at  period end     |       | 262,449                                                                           |       | 17,527 |   | 24,826 |   | 19,118 |   | 15,165 |   | 11,272 |   | (50,431 | ) | 299,926 |   |
|                                 |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                     | ** ** | **For the Three Months Ended August 31, 2006** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **U.S.**                                                                          | ** ** | **Germany** | ** ** | **Italy** | ** ** | **Canada** | ** ** | **Japan** | ** ** | **Other** | ** ** | **Elims** | ** ** | **Consolidated** | ** ** |
| Traditional  reagent revenues: |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | $                                                                                 | 28,229     |   | $ | 1,835 |   | $ | 1,924 |   | $ | 2,211 |   | $ | 1,899 |   | $ | 1,013 |   | $ | — |   | $ | 37,111 |   |
| Affiliates                     |       | 1,428                                                                             |       | 408 |   | — |   | 57 |   | — |   | 41 |   | (1,934 | ) | — |   |
| Total                          |       | 29,657                                                                            |       | 2,243 |   | 1,924 |   | 2,268 |   | 1,899 |   | 1,054 |   | (1,934 | ) | 37,111 |   |
| Capture reagent  revenues:     |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 5,519                                                                             |       | 891 |   | 1,345 |   | 437 |   | 131 |   | 1,263 |   | — |   | 9,586 |   |
| Affiliates                     |       | 1,374                                                                             |       | 45 |   | — |   | — |   | — |   | — |   | (1,419 | ) | — |   |
| Total                          |       | 6,893                                                                             |       | 936 |   | 1,345 |   | 437 |   | 131 |   | 1,263 |   | (1,419 | ) | 9,586 |   |
| Net instrument  revenues:      |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 2,219                                                                             |       | 430 |   | 281 |   | 105 |   | 2 |   | 231 |   | — |   | 3,268 |   |
| Affiliates                     |       | 190                                                                               |       | 822 |   | — |   | — |   | — |   | — |   | (1,012 | ) | — |   |
| Total                          |       | 2,409                                                                             |       | 1,252 |   | 281 |   | 105 |   | 2 |   | 231 |   | (1,012 | ) | 3,268 |   |
| Net collagen  revenues:        |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unaffiliated  customers        |       | 1,075                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,075 |   |
| Affiliates                     |       | —                                                                            |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                          |       | 1,075                                                                             |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,075 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                      |       | 40,034                                                                            |       | 4,431 |   | 3,550 |   | 2,810 |   | 2,032 |   | 2,548 |   | (4,365 | ) | 51,040 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss)  from operations |       | 18,151                                                                            |       | (285 | ) | 636 |   | 1,206 |   | (111 | ) | 408 |   | (238 | ) | 19,767 |   |
|                           |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation                   |       | 700                                                                               |       | 167 |   | 326 |   | 47 |   | 39 |   | 186 |   | — |   | 1,465 |   |
| Amortization                   |       | 70                                                                                |       | — |   | — |   | — |   | 16 |   | 2 |   | — |   | 88 |   |
| Restructuring  expenses        |       | 387                                                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | 387 |   |
| Income tax  expense            |       | 6,614                                                                             |       | — |   | 340 |   | 494 |   | — |   | 14 |   | (88 | ) | 7,374 |   |
| Capital  expenditures          |       | 1,287                                                                             |       | 46 |   | 259 |   | 15 |   | 12 |   | 161 |   | — |   | 1,780 |   |
| Property &  equipment, net |       | 16,644                                                                            |       | 2,330 |   | 3,002 |   | 1,306 |   | 552 |   | 2,039 |   | — |   | 25,873 |   |
| Total assets at  period end    |       | 179,502                                                                           |       | 13,071 |   | 19,732 |   | 14,542 |   | 13,302 |   | 9,531 |   | (43,784 | ) | 205,896 |   |
|                                |            |                                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The Company’s U.S.operations made net export sales to unaffiliated customers of approximately$1.4 million and $1.2 million for the three months ended August 31, 2007 and2006, respectively. The Company’s German operations made net export sales tounaffiliated customers of approximately $1.3 million and $0.9 million for thethree months ended August 31, 2007 and 2006, respectively. The Company’sCanadian operations made net export sales to unaffiliated customers ofapproximately****$0.4 million for each of thethree months ended August 31, 2007 and 2006.

 

12

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**10.****       COMMITMENTS ANDCONTINGENCIES**

 

*Italian subsidiary*

 

As previously reported, the Company’s Italiansubsidiary and Dr. Gioacchino De Chirico, the Company’s Chief Executive Officerand the former President of the subsidiary, have been the subjects of acriminal investigation in Milan, Italy centered on payments by severalcompanies to certain Italian physicians allegedly in exchange for favorablecontract awards by their hospitals. Dr. De Chirico was charged as the formerPresident of the subsidiary with directing a €13,500 payment to one physicianand payments totaling approximately $47,000 to another physician. Thesubsidiary was charged concerning the €13,500 payment under an Italian lawholding the subsidiary responsible for actions allegedly taken by an officer,and it settled these charges in January 2007 on terms that were not material tothe Company’s financial condition.

 

Dr. De Chirico has vigorously denied any wrongdoing,and is contesting the charges against him. The trial began in September 2007and is expected to continue well into 2008, and appeals of an unfavorableverdict could take several years. The Company has continued to expense Dr. DeChirico’s legal fees under the terms of the standard indemnification agreementapplicable to all the Company’s directors.

 

As previously reported, the Company and Dr. De Chiricohave been subject to an SEC investigation concerning these charges in Italy. OnSeptember 27, 2007 the SEC agreed to a complete settlement of thatinvestigation. Under the settlement, without admitting or denying anywrongdoing, the Company consented to the entry of an order that it cease anddesist from future violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 30A ofthe Securities Exchange Act of 1934. The SEC did not impose any monetarypenalty against the Company or require the Company to take any further action. TheSEC also approved a separate settlement with Dr. De Chirico related to the sameinvestigation. Without admitting or denying any wrongdoing, Dr. De Chiricoagreed to pay a $30,000 civil penalty and consented to the entry of an orderthat he cease and desist from causing future violations of Sections 13(b)(2)(A)and 13(b)(2)(B) of the Securities Exchange Act of 1934.

 

With the settlement in January 2007 by the Company’sItalian subsidiary of the charges against it in Italy, and the settlement ofthe SEC investigation, the Company does not expect to become subject to anyadditional fines, penalties and/or other charges imposed by the SEC or anyother governmental authority in connection with these circumstances.

 

*Class-action lawsuits*

 

Between August 31 and October 19, 2005, a series often class-action lawsuits were filed in the United States District Court forthe Northern District of Georgia against the Company and certain of the Company’scurrent and former directors and officers alleging violations of the securitieslaws. The Court consolidated these cases for disposition under the caption Inre Immucor, Inc. Securities Litigation, File No. 1:05-CV-2276-WSD, designatedlead plaintiffs, and permitted the filing of an amended consolidated complaint.The consolidated complaint, brought on behalf of a putative class ofshareholders who purchased Immucor stock between August 16, 2004 and August 29,2005, alleges that the Company’s stock prices during that period were inflatedas a result of material misrepresentations or omissions in the Company’sfinancial statements and other public announcements regarding the Company’sbusiness. The Company denies liability and has vigorously defended thelawsuits.

 

On May 18, 2007, the Court granted preliminaryapproval of a proposed settlement of these lawsuits and directed that notice ofthe settlement be provided to all class members. On September 20, 2007, theCourt conducted a hearing to inquire into the fairness, reasonableness andadequacy of the proposed settlement. On September 26, 2007, the Court enteredan order granting final approval for the terms of the proposed settlement.Under the settlement, the Company’s insurance carrier agreed to pay $2.5million to the plaintiff class in consideration of an unconditional release ofall claims against the Company and the individual defendants. The Company’sonly costs are certain legal defense expenses incurred by the Company, whichhave been expensed as incurred. The sole remaining open issue - the amount ofattorneys’ fees and expenses of litigation the Court will permit plaintiffs’counsel to recover from the agreed settlement proceeds - has no impact on theCompany or its insurer. The Court’s order concludes the Company’s involvementin this litigation and terminates the claims asserted in this litigation as toall class members. Management believes this resolution of the litigation has nomaterial adverse effect on the Company’s financial condition or results ofoperations.

 

13

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Other than as set forth above or as previouslyreported in the Company’s Annual Report on Form 10-K/A for the fiscal yearended May 31, 2007, as filed with the SEC on September 7, 2007, the Company isnot currently subject to any material legal proceedings, nor, to the Company’sknowledge, is any material legal proceeding threatened against the Company. However,from time to time, the Company may become a party to certain legal proceedingsin the ordinary course of business. Management does not believe any ongoinglegal proceedings, including those summarized above, will have a materialadverse effect on the Company’s consolidated financial position.

 

**11.****       RECENT ACCOUNTINGPRONOUNCEMENTS**

 

*Incometaxes*

 

On July 13, 2006, theFASB issued FIN 48. FIN 48 clarifies the accounting for uncertainty in incometaxes recognized in an entity’s financial statements in accordance with FASBStatement No. 109, “*Accounting for IncomeTaxes*” and prescribes a recognition threshold and measurementattributes for financial statement disclosure of tax positions taken orexpected to be taken on a tax return. Under FIN 48, the impact of an uncertainincome tax position on the income tax return must be recognized at the largestamount that is more-likely-than-not to be sustained upon audit by the relevanttaxing authority. An uncertain income tax position will not be recognized if ithas less than a 50% likelihood of being sustained. Additionally, FIN 48provides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure and transition. The Companyimplemented FIN 48 effective June 1, 2007. A more detailed discussion of theeffect of the adoption of FIN 48 is included in Note 7, “Income Taxes.”

 

*Fairvalue measurements*

 

In September 2006, theFASB issued Statement of Financial Accounting Standard No. 157, “*Fair Value Measurements*” (“SFAS No. 157”). SFAS No. 157provides guidance for using fair value to measure assets and liabilities. Thisstandard also responds to investors’ requests for expanded information aboutthe extent to which companies measure assets and liabilities at fair value, theinformation used to measure fair value and the effect of fair valuemeasurements on earnings. SFAS No. 157 applies whenever other standards require(or permit) assets or liabilities to be measured at fair value. The standarddoes not expand the use of fair value in any new circumstances. SFAS No. 157 iseffective for the Company in fiscal years beginning June 1, 2008. TheCompany does not believe SFAS No. 157 will have a material impact on theCompany’s results from operations or financial position.

 

*Fairvalue option for certain financial instruments*

 

On February 15,2007, the FASB issued SFAS No. 159, “*The FairValue Option for Financial Assets and Financial Liabilities,*” (“SFASNo.159”) which gives entities the option to measure eligible financial assets,financial liabilities and firm commitments at fair value (i.e., the fair valueoption), on an instrument-by-instrument basis, that are otherwise not permittedto be accounted for at fair value under other accounting standards. Theelection to use the fair value option is available when an entity firstrecognizes a financial asset or financial liability or upon entering into afirm commitment. Subsequent changes in fair value must be recorded in earnings.SFAS No. 159 is effective for the Company in fiscal years beginningJune 1, 2008. The Company is currently assessing the effect ofimplementing this guidance, which is dependent upon the nature and extent ofeligible items elected to be measured at fair value upon initial application ofthe standard. However, the Company does not expect the adoption of SFASNo. 159 to have a material impact on the Company’s results of operationsand financial position.

 

*Advancepayments for research and development activities*

 

In June 2007, theEmerging Issues Task Force (“EITF”) issued EITF 07-3, “*Accounting forNonrefundable Advance Payments for Goods or Services to Be Used in FutureResearch and Development Activities*” (“EITF 07-3”). EITF 07-3addresses the diversity that exists with respect to the accounting for thenon-refundable portion of a payment made by a research and development entityfor future research and development activities. The EITF concluded that anentity must defer and capitalize non-refundable advance payments made forresearch and development activities until the related goods are delivered orthe related services are performed.

 

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Entities should continueto evaluate whether they expect the goods to be delivered or services to berendered. If an entity does not expect the goods to be delivered or services tobe rendered, the capitalized advance payment should be charged to expense. EITF07-3 is effective for the Company in fiscal years beginning June 1, 2008.The Company does not believe the adoption of EITF 07-3 will have amaterial impact on its results of operations or financial position.

 

## **ITEM2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

*Certainstatements that the Company may make from time to time, including allstatements contained in this report that are not statements of historical fact,constitute “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995 and the safe harbor provisions setforth in Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. Forward-looking statements may be identifiedby words such as “plans,” “expects,” “believes,” “anticipates,” “estimates,” “projects,”“will,” “should” and other words of similar meaning used in conjunction with,among other things, discussions of future operations, financial performance,product development and new product launches, FDA and other regulatoryapplications and approvals, market position and expenditures. Factors thatcould cause actual results to differ materially from those expressed in anyforward-looking statement made by, or on behalf of, the Company include thefollowing, some of which are described in greater detail below: lower thanexpected market acceptance of the Company’s new Galieo Echo instrument; thedecision of customers to defer capital spending; the inability of customers toefficiently integrate the Company’s instruments into their blood bankingoperations; increased competition in the sale of instruments and reagents,particularly in North America; product development or regulatory obstacles; theability to hire and retain key managers; changes in interest rates;fluctuations in foreign currency conversion rates; the ability of the Company’sJapanese subsidiary to attain expected revenue, gross margin and net incomelevels; the outcome of any legal claims known or unknown; delays in regulatoryapprovals required to move Houston manufacturing to another Company facility;other currently unforeseen events that could delay the move; higher thanexpected Houston closure costs; higher than expected manufacturingconsolidation costs; the unexpected application of different accounting rules;and general economic conditions. In addition, the strengthening of the USDollar versus the Euro, Canadian Dollar and Japanese Yen would adversely impactreported results. Investors are cautioned not to place undue reliance on anyforward-looking statements. The Company cautions that historical results shouldnot be relied upon as indications of future performance. The Company assumes noobligation to update any forward-looking statements.*  *Additional information concerning these and other factors which couldcause differences between forward-looking statements and future actual resultsis discussed under the heading “Risk Factors” in the Company’s Annual Report onForm 10-K/A for the year ended May 31, 2007, as filed with the SEC onSeptember 7, 2007.*

 

**Overview**

 

*Our Business*

 

We develop, manufacture, and sell a complete line ofreagents and automated systems used primarily by hospitals, clinicallaboratories and blood banks in tests performed to detect and identify certainproperties of human blood prior to blood transfusion. We have manufacturingfacilities in the United States and Canada. We sell our products from thesefacilities and through our affiliates in Germany, Italy, Belgium, Spain,Portugal and Japan.

 

The FDA regulates all aspects of the immunohematologyindustry, including marketing of reagents and instruments used to detect andidentify blood properties. Our industry has been very labor intensive but inrecent years it has made noticeable advances in automating certain manualprocesses. We believe that companies that have successfully introduced newtechnologies and automated products have seen their profitability improve.

 

We have introducedseveral instruments in the past, and we continue to focus on developing newinstruments and improving our existing instruments. In June 2007, we receivedFDA clearance to market our latest instrument, EchoTM, which is a compact benchtop, fully-automated walk-away instrument for small- and medium-sizedhospitals, blood banks and transfusion laboratories. EchoTM uses Captureproducts, our proprietary reagents, and offers an extensive test menu andsignificant labor reduction while increasing productivity and patient safety.We expect to increase our market share and revenues from the sale of EchoTM andGalileo® instruments and the sale of Capture products in the near term.Instruments and Capture products currently account for approximately 27% of ourrevenues.

 

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* *

*Performance*

 

In fiscal 2008, we continued to focus on increasingrevenue and in improving gross margins, using the strategies we firstimplemented in fiscal 2005. We have also concentrated our efforts in successfullymarketing the EchoTM after receiving the FDA clearance in June 2007. As part ofthis effort, in the first quarter of fiscal 2008 (the “2008 Quarter”), wecritically examined and modified, where necessary, the changes in ourorganization structure we had previously made in fiscal 2007, including thehiring and training of additional sales and technical personnel to ensure thesmooth introduction of the EchoTM. We also continued to place Galileo®instruments in the market.

 

As of August 31, 2007, we had received purchase ordersfor a total of 504 Galileo® instruments worldwide (an increase of 23instruments in the 2008 Quarter), including 292 in Europe, 210 in North Americaand 2 in Japan, and 456 of these instruments were generating reagent revenues,an increase of 33 instruments in the quarter. We began selling EchoTM in the2008 Quarter. As of August 31, 2007, we had received purchase orders for atotal of 30 EchoTM instruments worldwide.

 

Our overall gross marginincreased to 72% during the 2008 Quarter from 68% achieved in the correspondingquarter of fiscal 2007 (the “2007 Quarter”). The 25% increase in revenue and 7%improvement in overall gross margin during the 2008 Quarter compared to the2007 Quarter, were largely attributable to the price increases in ourtraditional reagents (reagents not using our patented Capture technology)introduced in fiscal 2006 and 2007, and to a lesser extent on volume increasesin Capture products and sale of instruments.

 

In the 2008 Quarter, ouroperating expenses rose by 27% while gross profit increased by 33%, which translatedinto a 39% increase in net income compared to the 2007 Quarter. Expensesrelating to the EchoTM launch and cost associated with the development of thenext version of the Galileo® contributed to a higher percentage increase inoperating expenses than what we have experienced in the recent past. However,in spite of these additional costs, increased revenues and improved grossmargin enabled us to achieve a record quarter in terms of revenue and grossprofit. This performance has translated into an increase in our cash resourcesfrom $113.6 million at May 31, 2007 to $124.8 million at August 31, 2007.

 

*Business Outlook*

 

For fiscal 2008, our primary focus will be insuccessfully introducing and marketing the new Echo*TM*to small- and medium-size customers. We will also continue to focus on placingGalileo® instruments with larger customers. Over the next few years, we expectour core business to shift gradually from being mainly a supplier oftraditional reagents to being a major supplier of automated instruments thatuse our proprietary Capture technology and products. Simultaneously, we intendto increase our research and development efforts to introduce the next versionof the Galileo® with additional and improved features.

 

Additionally, as a resultof the planned closure of the Houston, Texas, manufacturing facility scheduledfor December 2007 and the subsequent consolidation of production in Norcross,Georgia, and Halifax, Nova Scotia, the Company anticipates a significantreduction in costs, with the benefits expected to be partially realized in the2008 fiscal year and fully realized in fiscal 2009 and subsequent years.

 

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**Resultsof Operations**

 
| ** **                | ** ** | **For the Quarter Ended August 31,** | ** ** | **Change**                     | ** ** |
|---------------------------|------------|---------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                | ** ** | **2007**                                                      | ** ** | **2006**                       | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **                | ** ** | ** **                                                    | ** ** | **($ in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Sales                 |       | $                                                             | 63,632     |                           | $          | 51,040 |   | $ | 12,592 |   | 25 | % |
| Gross profit              |       | 45,881                                                        |       | 34,536                         |       | 11,345 |   | 33 | % |
| Gross profit  percentage  |       | 72                                                            | %          | 68                             | %          | n/m |   | 7 | % |
| Operating  expenses       |       | 18,805                                                        |       | 14,769                         |       | 4,036 |   | 27 | % |
| Income from  Operations   |       | 27,076                                                        |       | 19,767                         |       | 7,309 |   | 37 | % |
| Non-operating  income     |       | 836                                                           |       | 340                            |       | 496 |   | 146 | % |
| Income before  income tax |       | 27,912                                                        |       | 20,107                         |       | 7,805 |   | 39 | % |
| Provision for  income tax |       | 10,162                                                        |       | 7,374                          |       | 2,788 |   | 38 | % |
| Net income                |       | $                                                             | 17,750     |                           | $          | 12,733 |   | $ | 5,017 |   | 39 | % |

 

Improved sales and margins, along with aproportionately lower increase in operating expenses, resulted in an increasein net income for the 2008 Quarter of $5.0 million, 39% higher than the 2007Quarter. Diluted earnings per share totaled $0.25 for the 2008 Quarter, ascompared to diluted earnings per share of $0.18 for the 2007 Quarter, anincrease of 39%.

 

United States operationscontinue to generate the majority of our revenue and operating income. U.S.operations generated 74% and 92%, respectively, of our revenue and operatingincome in the 2008 Quarter compared to 73% and 92%, respectively, in the 2007Quarter.

 

*Net Sales*

 
| ** **            | ** ** | **For the Quarter Ended August 31,** | ** ** | **Change**                     | ** ** |
|-----------------------|------------|---------------------------------------------------------------|------------|--------------------------------|------------|
| ** **            | ** ** | **2007**                                                      | ** ** | **2006**                       | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **            | ** ** | ** **                                                    | ** ** | **($ in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Traditional  reagents |       | $                                                             | 45,076     |                           | $          | 37,502 |   | $ | 7,574 |   | 20 | % |
| Capture products      |       | 11,940                                                        |       | 9,195                          |       | 2,745 |   | 30 | % |
| Instruments           |       | 5,109                                                         |       | 3,268                          |       | 1,841 |   | 56 | % |
| Collagen              |       | 1,507                                                         |       | 1,075                          |       | 432 |   | 40 | % |
|                  |       | $                                                             | 63,632     |                           | $          | 51,040 |   | $ | 12,592 |   | 25 | % |

 

Of the $12.6 million total increase in revenues,approximately $8.7 million came from price increases in the United States,approximately $1.5 million came from volume increases including instrument,warranty and service revenue in the United States, approximately $1.6 million camefrom sales increases including instrument revenues outside the United States,and the effect of the change in the Euro, Japanese Yen and Canadian Dollarexchange rates increased sales by approximately $0.8 million.

 

The 20% growth in traditional reagent revenue in the2008 Quarter compared to the 2007 Quarter occurred mainly as a result of priceincreases in the United States. Traditional reagent sales have historicallybeen our primary source of revenue and still constitute roughly 70% of ourrevenues. We expect the significance of this line of products to graduallydecline as we place more instruments in the market that use our proprietaryCapture products.

 

Sales of Capture productsincreased by 30% in the 2008 Quarter compared to the 2007 Quarter mainly due tovolume increases. Sales of Capture products are largely dependent on the numberof installed instruments requiring the use of Capture reagents. As we succeedin placing more instruments in the market, we expect revenue from Captureproducts to increase.

 

Revenue from instruments increased by 56% in the 2008Quarter compared to the 2007 Quarter. In the 2008 Quarter, $1.6 million ofdeferred revenue was recognized from previously placed instruments compared to$0.9 million recognized in the 2007 Quarter. Most instrument sales in theUnited States are recognized over the life of the underlying reagent contract,which is normally five years. In the 2008 Quarter, approximately $2.9 

 

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million of instrument sales and associated servicerevenues were deferred in this manner, compared to $1.7 million in the 2007Quarter. As of August 31, 2007 and August 31, 2006, deferred instrument andservice revenues totaled $21.4 million and $19.7 million, respectively. In the2008 Quarter, we received orders for 23 Galileo® instruments compared to 19orders received for Galileo® instruments in the 2007 Quarter. We expect toplace more instruments in the market and increase revenue from this sector ofour business.

 

Human collagen forms a very small part of ourbusiness, and we expect to discontinue this product in fiscal 2009 when ourmanufacturing commitment expires.

 

*GrossMargins*

 
| ** **            | ** ** | **For the Quarter Ended August 31,** | ** ** | ** **        | ** ** |
|-----------------------|------------|---------------------------------------------------------------|------------|-------------------|------------|
| ** **            | ** ** | **2007**                                                      | ** ** | **2006**          | ** ** | **Change** | ** ** |
| ** **            | ** ** | **Amount**                                                    | ** ** | **Margin %** | ** ** | **Amount** | ** ** | **Margin %** | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **            | ** ** | **(in ‘000)**                                       | ** ** | ** **        | ** ** | **(in ‘000)** | ** ** | ** ** | ** ** | **(in ‘000)** | ** ** | ** ** | ** ** |
| Traditional  reagents |       | $                                                             | 35,864     |              | 80         | % | $ | 27,811 |   | 74 | % | $ | 8,053 |   | 29 | % |
| Capture products      |       | 10,101                                                        |       | 85                | %          | 7,341 |   | 80 | % | 2,760 |   | 38 | % |
| Instruments           |       | (210                                                          | )          | -4                | %          | (1,020 | ) | -31 | % | 810 |   | 79 | % |
| Collagen              |       | 126                                                           |       | 8                 | %          | 404 |   | 38 | % | (278 | ) | -69 | % |
|                  |       | $                                                             | 45,881     |              | 72         | % | $ | 34,536 |   | 68 | % | $ | 11,345 |   | 33 | % |

 

Overall gross marginimproved during the 2008 Quarter to 72%, up from 68% in the 2007 Quarter, dueto improvement in margins in all three main categories of our business. Grossmargin on traditional reagents improved by 6% in the 2008 Quarter as comparedto the 2007 Quarter primarily due to price increases.

 

In the 2007 Quarter, wepaid $0.2 million royalties under an agreement which expired in fiscal 2007 forcertain Capture products; we did not incur any royalty expenses for theseproducts in the 2008 Quarter. The reduction in royalty expenses largelyimproved the gross margin on Capture products by 5% in the 2008 Quarter ascompared to the 2007 Quarter.

 

In the case ofinstruments, comparing gross margin from period to period can be misleading dueto the method of accounting used for revenue and cost for certain types ofinstrument sales. Where sales contracts have price guarantee clauses,instrument costs are expensed when the sale is made, but the related revenue isdeferred and recorded as income over the term of the contract. For the 2008Quarter, the gross margin on instruments was negative 4% and, for the 2007Quarter, it was negative 31%.

 

*OperatingExpenses*

 
| ** **                      | ** ** | **For the Quarter Ended August 31,** | ** ** | **Change**                     | ** ** |
|---------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **2007**                                                      | ** ** | **2006**                       | ** ** | **Amount** | ** ** | **%** | ** ** |
| ** **                      | ** ** | ** **                                                    | ** ** | **($ in thousands)** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Research and  development       |       | $                                                             | 2,055      |                           | $          | 1,226 |   | $ | 829 |   | 68 | % |
| Selling and  marketing          |       | 7,569                                                         |       | 5,559                          |       | 2,010 |   | 36 | % |
| Distribution                    |       | 2,684                                                         |       | 2,288                          |       | 396 |   | 17 | % |
| General and  administrative     |       | 5,880                                                         |       | 5,222                          |       | 658 |   | 13 | % |
| Restructuring  expense          |       | 531                                                           |       | 387                            |       | 144 |   | 37 | % |
| Amortization  expense and other |       | 86                                                            |       | 87                             |       | (1 | ) | -1 | % |
| Total operating  expenses       |       | $                                                             | 18,805     |                           | $          | 14,769 |   | $ | 4,036 |   | 27 | % |

 

Research and development expenses increased by $0.8million to $2.1 million in the 2008 Quarter. Expenses relating to developmentof the second generation Galileo® ($0.6 million) accounted for most of theincrease.

 

Selling and marketingexpenses increased by approximately $2.0 million to $7.6 million for the 2008Quarter compared to the 2007 Quarter; impacted primarily by new hires, annualsalary increases and other salary related expenses ($0.7 million) and anincrease in sales meetings, conventions and travel expenses ($0.5 million). Asignificant amount of these expenses related to the launch of the EchoTMinstrument in June 2007.

 

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General andadministrative expenses increased by $0.7 million as compared to the 2007Quarter to $5.9 million in the 2008 Quarter. Major variations were an increasein salary, share-based compensation and bonus expenses ($1.4 million) and areduction in professional services attributable primarily to the reduction inoutsourcing of Sarbanes-Oxley compliance work ($1.0 million).

 

*IncomeTaxes*

 

The provision for incometaxes increased $2.8 million to $10.2 million in the 2008 Quarter compared tothe tax charge of $7.4 million in the 2007 Quarter, primarily due to higherpre-tax income.

 

As a result of utilizingcompensation cost deductions arising from the exercise of nonqualified employeestock options granted prior to June 1, 2006 for federal and state income taxpurposes, we realized income tax benefits of approximately $4.3 million and$0.4 million in the 2008 Quarter and the 2007 Quarter, respectively. Asrequired by U.S. generally accepted accounting principles, these income taxbenefits are recognized in our financial statements as additions to additionalpaid-in capital rather than as reductions of the respective income taxprovisions in the consolidated financial statements because the relatedcompensation deductions are not recognized as compensation expense forfinancial reporting purposes. Our income tax liability is reduced by theseamounts.

 

*Non-OperatingIncome (Expenses):*

 
| ** **            | ** ** | **For the Quarter Ended August 31,** | ** ** | **Change**                     | ** ** |
|-----------------------|------------|---------------------------------------------------------------|------------|--------------------------------|------------|
| ** **            | ** ** | **2007**                                                      | ** ** | **2006**                       | ** ** | **Amount** | ** ** |
| ** **            | ** ** | ** **                                                    | ** ** | **($ in thousands)** | ** ** | ** ** | ** ** |
| Non-operating  income |       | $                                                             | 836        |                           | $          | 340 |   | $ | 496 |   |
|                       |            |                                                               |            |                                |            |  |  |  |  |  |

 

The increase in non-operating income was primarilyattributable to a $0.6 million increase in interest income due to the increasein our cash balance.

 

*NetIncome and Earnings per Share*

 

Higher sales and improvedmargins resulted in net income for the 2008 Quarter of $17.8 million, up 39%from $12.7 million for the 2007 Quarter. For the fiscal 2008 Quarter, dilutedearnings per share were $0.25, up from $0.18 for the 2007 Quarter.

 

**Liquidityand Capital Resources**

 
| ** **                                                    | ** ** | **For the Quarter Ended  August 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                    | ** ** | **2007**                                                  | ** ** | **2006** | ** ** |
| ** **                                                    | ** ** | **(in thousands)**                                   | ** ** |
| Net cash  provided by operating activities                    |       | $                                                         | 13,636     |   | $ | 21,070 |   |
| Net cash used in  investing activities                        |       | (2,939                                                    | )          | (788 | ) |
| Net cash  provided by (used in) financing activities          |       | 134                                                       |       | (4,399 | ) |
| Effect of  exchange rate changes on cash and cash equivalents |       | 396                                                       |       | (225 | ) |
| Increase in cash  and cash equivalents                        |       | $                                                         | 11,227     |   | $ | 15,658 |   |

 

Our cash, cashequivalents and short-term investments were $124.8 million at August 31, 2007,as compared to $113.6 million at May 31, 2007. Factors significantlycontributing to the $11.2 million increase in the 2008 Quarter were the $17.8million in net income and $4.3 million in tax benefits received from theexercise of stock options, partly offset by an increase in inventory of $5.1million and a cash outflow of $5.5 million for payment of withholding taxes incompliance with statutory withholding requirements on exercise of options andvesting of restricted shares in exchange for surrender of the Company’s sharesof equal value.

 

*OperatingActivities -* Net cash generated by operating activities was$13.6 million for the 2008 Quarter, a $7.5 million decrease over the $21.1million generated in the 2007 Quarter. The increase in net income of $5.0million (from $12.7 million for 2007 Quarter to $17.7 million for 2008 Quarter)was offset by, among other things, an adjustment of approximately $4.3 million($0.4 million for 2007 Quarter) for the tax benefit arising on

 

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exercise of stock optionswhich is required to be disclosed as cash generated by financing activitiessince our adoption of SFAS 123(R) effective June 1, 2006. Inventory increasedby approximately $5.1 million mainly due to the build up of inventory ofinstruments and related parts in anticipation of an increase in instrumentbusiness in the near term following the launch of our EchoTM instrument in June2007.

 

*InvestingActivities -* For the 2008 Quarter, $2.9 million of net cashwas used in investing activities for the purchase of property and equipment. Plannedcapital expenditures for fiscal 2008 total approximately $14.2 million, whichwe intend to finance from our internal resources. In the 2007 Quarter, we spent$1.8 million on the purchase of property and equipment, offset by proceeds fromthe maturity of short term investments ($1.0 million).

 

*FinancingActivities –* In the 2008 Quarter, net cash provided byfinancing activities was a nominal amount, compared to $4.4 million of net cashused in the 2007 Quarter. During the 2008 Quarter, we had a cash outflow of$5.5 million for payment of withholding taxes in compliance with the statutorywithholding requirements on exercise of options and vesting of restrictedshares in exchange for surrender of the Company’s shares of equal value. Thevalue of these reacquired shares is disclosed as ‘Repurchase of common stock’under financing activities in the condensed consolidated statement of cashflows. In the 2008 Quarter, we did not repurchase any shares in the open marketunder our stock repurchase program, compared to the $4.9 million used in the2007 Quarter for this purpose. We received $1.5 million and $0.2 million fromthe exercise of employee stock options in the 2008 Quarter and 2007 Quarter,respectively. We received $4.3 million and $0.4 million excess tax benefitsfrom share-based compensation for the 2008 Quarter and 2007 Quarter,respectively.

 

*Stock Repurchase Program*

 

During the 2008 Quarter, we did not repurchase anyshares under the program. During the 2007 Quarter, 281,969 shares amounting to$4.9 million were repurchased under this program. An aggregate of 1,142,056shares were available for repurchase under the program as of August 31, 2007.

 

*ContingentLiabilities*

 

We record contingent liabilities resulting from asserted andunasserted claims against us when it is probable that a liability has beenincurred and the amount of the loss is reasonably estimable. We disclosecontingent liabilities when there is a reasonable possibility that the ultimateloss will exceed the recorded liability. Estimating probable losses requiresanalysis of multiple factors, in some cases including judgments about thepotential actions of third-party claimants and courts. Therefore, actual lossesin any future period are inherently uncertain. We currently are involved incertain legal proceedings. We do not believe these proceedings will have amaterial adverse effect on our consolidated financial position. It is possible,however, that future results of operations for any particular quarterly orannual period could be materially affected by changes in our assumptions or theeffectiveness of our strategies related to these proceedings. Contingentliabilities are described in Note 10 to the condensed consolidated financialstatements.

 

*FutureCash Requirements and Restrictions*

 

We expect that cash andcash equivalents and cash flows from operations will be sufficient to supportoperations and planned capital expenditures for at least the next 12 months. Thereare no restrictions on our subsidiaries in the matter of sending dividends, ormaking loans or advances to Immucor.

 

**CriticalAccounting Policies**

 

*General*

 

We have identified thepolicies below as critical to our business operations and to the understandingof our results of operations. The impact and any associated risks related tothese policies on our business operations are discussed throughout Management’sDiscussion and Analysis of Financial Condition and Results of Operations wheresuch policies affect our reported and expected financial results. For adetailed discussion on the application of these and other accounting policies,see the notes to the condensed consolidated financial statements of thisquarterly report on Form 10-Q and the notes to the consolidated financialstatements and the Management Discussion and Analysis of Financial Conditionand Results of Operations contained in our Annual

 

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Report on Form 10-K forthe fiscal year ended May 31, 2007. Senior management has discussed thedevelopment and selection of critical accounting estimates and the relatedManagement’s Discussion and Analysis of Financial Condition and Results ofOperations disclosure with the Audit Committee of our Board of Directors. Webelieve that our most critical accounting policies and estimates relate to thefollowing:

 

i.            Revenue recognition

ii.           Trade accounts receivables andallowance for doubtful accounts

iii.          Inventories

iv.          Goodwill

v.           Income taxes

vi.          Share-based compensation

 

*i)Revenue Recognition*

 

In accordance with theStaff Accounting Bulletin No. 104, *Revenue Recognition*, guidance, werecognize revenue when the following four basic criteria have been met: (1)persuasive evidence of an arrangement exists; (2) delivery has occurred orservices rendered; (3) the fee is fixed and determinable; and (4)collectibility is reasonably assured. Should changes in conditions causemanagement to determine these criteria are not met for certain futuretransactions, revenue recognized for any reporting period could be adverselyaffected.

 

•      Reagentsales

Revenue from the sale ofour reagents to end users is recognized upon shipment when both title and riskof loss transfer to the customer, unless there are specific contractual termsto the contrary. Revenue from the sale of our reagents to distributors isrecognized FOB customs clearance when both title and risk of loss transfer tothe customer.

 

•      Medical instrument sales

Revenue from the sale ofour medical instruments without multiple deliverables is generally recognizedupon shipment and completion of contractual obligations. Revenue from rentalsof our medical instruments is recognized over the term of the rental agreement.Instrument service contract revenue is recognized over the term of thecontract.

 

In cases of sales ofinstruments with multiple deliverables, we recognize revenue in accordance withEmerging Issues Task Force (“EITF”) Issue No. 00-21, *Accounting for Revenue Arrangements with Multiple Deliverables*.Our medical instrument sales contracts with multiple deliverables include thesale or rental of an instrument (including delivery, installation andtraining), the servicing of the instrument during the first year, and, in manycases, price guarantees for consumables purchased during the contract period. Wehave determined the fair value of certain of these elements, such as trainingand first year service. The portion of the instrument sales price applicable tothe instrument itself is recognized upon shipment and completion of contractualobligations relating to training and/or installation. If the agreement does notinclude any price guarantees, the sales price in excess of the fair values of trainingand service is allocated to the instrument itself. The fair value of a trainingsession is recognized as revenue when services are provided. If multipletraining sessions are contractually provided, then additional training revenueis recognized upon delivery. The fair value of first year service is recognizedover the first year of the contract. If the agreement contains priceguarantees, the entire arrangement consideration is deferred and recognizedover the related guarantee period due to the fair value of the price guaranteenot being determinable at the point of sale. The allocation of the totalconsideration, which is based on the estimated fair value of the units ofaccounting, requires judgment by management.

 

ii) *TradeAccounts Receivable and Allowance for Doubtful Accounts*

 

Trade receivables at August 31, 2007, totaling $50.3million, and at May 31, 2007, totaling $47.8 million, are net of allowances fordoubtful accounts of $1.8 million and $1.7 million, respectively. The allowancefor doubtful accounts represents a reserve for estimated losses resulting fromthe inability of our customers to pay their debts. The collectibility of tradereceivable balances is regularly evaluated based on a combination of factorssuch as customer credit-worthiness, past transaction history with the customer,current economic industry trends and changes in customer payment patterns. Ifit is determined that a customer will be unable to fully meet its financialobligation, such as in the case of a bankruptcy filing or other material eventsimpacting its business,

 

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a specific allowance for doubtful accounts is recordedto reduce the related receivable to the amount expected to be recovered.

 

*iii)Inventories*

 

Inventories are stated atthe lower of cost (first-in, first-out basis) or market (net realizable value).Cost includes material, labor and manufacturing overhead. We use a standardcost system as a tool to monitor production efficiency. The standard cost systemapplies estimated labor and manufacturing overhead factors to inventory basedon budgeted production and efficiency levels, staffing levels and costs ofoperation, based on the experience and judgment of management. Actual costs andproduction levels may vary from the standard established and such variances arecharged to the consolidated statement of income as a component of cost of sales.Since U.S. generally accepted accounting principles require that the standardcost approximate actual cost, periodic adjustments are made to the standardrates to approximate actual costs. The provision for obsolete and/or excessinventory is reviewed on a quarterly basis or, if warranted by circumstances,more frequently. In evaluating this reserve, management considers technologychanges, competition, customer demand, product shelf life and manufacturingquality. No material changes have been made to the inventory policy during thefirst quarter of fiscal 2008.

 

*iv)Goodwill*

 

On adoption of Statementof Financial Accounting Standard No. 142, *Goodwill and OtherIntangible Assets,* goodwill and indefinite lived intangible assetsare no longer amortized but are tested for impairment annually or morefrequently if impairment indicators arise. Intangible assets that have finitelives are continuing to be amortized over their useful lives.

 

We evaluate the carryingvalue of goodwill as at the end of the third quarter of each year and betweenannual evaluations if events occur or circumstances change that would morelikely than not reduce the fair value of the reporting unit below its carryingamount. Such circumstances could include, but are not limited to: (1) asignificant adverse change in legal factors or in business climate, (2)unanticipated competition, or (3) an adverse action or assessment by aregulator. When evaluating whether goodwill is impaired, we compare the fairvalue of the reporting unit to which the goodwill is assigned to the reportingunit’s carrying amount, including goodwill. The fair value of the reportingunit is estimated using primarily the income, or discounted cash flows,approach. If the carrying amount of a reporting unit exceeds its fair value,then the amount of the impairment loss must be measured. The impairment losswould be calculated by comparing the implied fair value of the reporting unit’sgoodwill to its carrying amount. In calculating the implied fair value of thereporting unit’s goodwill, the fair value of the reporting unit is allocated toall of the other assets and liabilities of that unit based on their fair values.The excess of the fair value of a reporting unit over the amount assigned toits other assets and liabilities is the implied fair value of goodwill. Animpairment loss would be recognized when the carrying amount of goodwillexceeds its implied fair value.

 

*v) IncomeTaxes*

 

We record the estimatedfuture tax effects of temporary differences between the tax bases of assets andliabilities and amounts reported in the accompanying consolidated balancesheets, as well as operating loss and tax credit carry-forwards. The value ofour deferred tax assets assumes that we will be able to generate sufficientfuture taxable income in certain tax jurisdictions, based on estimates andassumptions. If these estimates and related assumptions change in the future,we may be required to record additional valuation allowances against ourdeferred tax assets resulting in additional income tax expense in ourconsolidated statements of income. In assessing the realizability of deferredtax assets, we consider whether it is more likely than not that some portion orall of the deferred tax assets will not be realized, and we consider thescheduled reversal of deferred tax liabilities, projected future taxableincome, carry-back opportunities, and tax-planning strategies in making thisassessment. We assess the need for additional valuation allowances quarterly.

 

The calculation of taxliabilities involves significant judgment in estimating the impact ofuncertainties in the application of complex tax laws. Although FIN 48, which weadopted at the beginning of fiscal 2008, provides further clarification on theaccounting for uncertainty in income taxes recognized in the financialstatements, the new threshold and measurement attribute prescribed by the FASBwill continue to require significant judgment by management. Resolution ofthese uncertainties in a manner inconsistent with our expectations could have amaterial impac on our results of operations.

 

*vi)Share-based Employee Compensation*

 

We adopted Statement ofFinancial Accounting Standard No. 123R, *Share-Based Payment*(“SFAS 123(R)”), on June 1, 2006, using the modified prospective transitionmethod, which requires that (i) compensation costs be recorded as earned forall unvested stock options outstanding at the beginning of the first fiscalyear of adoption

 

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of SFAS 123(R) based onthe grant date fair value estimated in accordance with the original provisionsof Statement of Financial Accounting Standard No. 123, *Accountingfor Stock-Based Compensation*, and (ii) for compensation costs forall share-based payments granted or modified subsequent to the adoption berecorded, based on the grant date fair value estimated in accordance with theprovisions of SFAS 123(R). On adoption of SFAS 123(R), we elected to attributethe value of share-based compensation to expense using the straight-linemethod, which was previously used for disclosing our pro forma informationrequired under SFAS 123.

 

We elected to value ourshare-based payment awards using the Black-Scholes option-pricing model (the “Black-Scholesmodel”), which was previously used for disclosing our pro forma informationrequired under SFAS 123. The Black-Scholes model was developed for use inestimating the fair value of traded options that have no vesting restrictionsand are fully transferable. The Black-Scholes model requires the input ofcertain assumptions. Our stock options have characteristics significantlydifferent from those of traded options, and changes in the assumptions canmaterially affect the fair value estimates.

 

We have calculated ouradditional paid in capital pool (“APIC pool”) based on the actual income taxbenefits received from exercises of stock options granted after the effectivedate of SFAS 123 using the long method. The APIC pool is available to absorbany tax deficiencies subsequent to the adoption of SFAS 123(R).

 

**ITEM 3. Quantitativeand Qualitative Disclosures about Market Risk**

 

Therehave been no material changes regarding the Company’s market risk positionsince the filing of its Annual Report on Form 10-K/A for the fiscal year endedMay 31, 2007, as filed with the SEC on September 7, 2007. For further detailsregarding the quantitative and qualitative disclosures about market risk, seeItem 7A, Quantitative and Qualitative Disclosures About Market Risk, containedin the Company’s Annual Report on Form 10-K/A for the fiscal year ended May 31,2007.

 

**ITEM 4. Controls and Procedures**

 

As required by Rule 13a-15 under the SecuritiesExchange Act of 1934, an evaluation was carried out under the supervision andwith the participation of our management, including the Chief Executive Officerand Chief Financial Officer, of the effectiveness of the design and operationof our disclosure controls and procedures as of August 31, 2007. Based upon ourevaluation, our Chief Executive Officer and Chief Financial Officer haveconcluded that, as of August 31, 2007, our disclosure controls and procedureswere effective to provide reasonable assurance that information required to bedisclosed in the reports that we file or submit under the Securities ExchangeAct of 1934 is recorded, processed, summarized and reported within the timeperiods specified in the applicable rules and forms, and that it isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Chief Financial Officer, as appropriate, to allow timely decisionsregarding required disclosure.

 

There were no changes in our internal control overfinancial reporting during the quarter ended August 31, 2007 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

**PART II**

 

**OTHERINFORMATION**

 

**ITEM 1.Legal Proceedings**

 

*Italian subsidiary*

 

As previously reported, the Company and Dr. De Chiricohave been subject to an SEC investigation concerning charges against ourItalian subsidiary and Dr. De Chirico in Italy related to allegedly-improperpayments to certain Italian physicians. On September 27, 2007 the SEC agreed toa complete settlement of that investigation. Under the settlement, withoutadmitting or denying any wrongdoing, we consented to the entry of an order thatwe cease and desist from future violations of Sections 13(b)(2)(A), 13(b)(2)(B)and 30A of the Securities Exchange Act of 1934. The SEC did not impose anymonetary penalty against us or require us to take any further action. The SECalso approved a separate settlement with Dr. De Chirico related to the sameinvestigation. Without admitting or denying any wrongdoing, Dr. De Chiricoagreed to pay a $30,000 civil

 

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penalty and consented to the entry of an order that hecease and desist from causing future violations of Sections 13(b)(2)(A) and13(b)(2)(B) of the Securities Exchange Act of 1934.

 

With the settlement in January 2007 by our Italiansubsidiary of the charges against it in Italy, and the settlement of the SECinvestigation, we do not expect to become subject to any additional fines,penalties and/or other charges imposed by the SEC or any other governmentalauthority in connection with these circumstances.

 

*Class-action lawsuits*

 

Between August 31 and October 19, 2005, a series often class-action lawsuits were filed in the United States District Court forthe Northern District of Georgia against us and certain of our current andformer directors and officers alleging violations of the securities laws. TheCourt consolidated these cases for disposition under the caption In re Immucor,Inc. Securities Litigation, File No. 1:05-CV-2276-WSD, designated leadplaintiffs, and permitted the filing of an amended consolidated complaint. Theconsolidated complaint, brought on behalf of a putative class of shareholders whopurchased Immucor stock between August 16, 2004 and August 29, 2005, allegesthat our stock prices during that period were inflated as a result of materialmisrepresentations or omissions in our financial statements and other publicannouncements regarding our business. We deny liability and have vigorouslydefended the lawsuits.

 

On May 18, 2007, the Court granted preliminaryapproval of a proposed settlement of these lawsuits and directed that notice ofthe settlement be provided to all class members. On September 20, 2007, theCourt conducted a hearing to inquire into the fairness, reasonableness andadequacy of the proposed settlement. On September 26, 2007, the Court enteredan order granting final approval for the terms of the proposed settlement. Underthe settlement, our insurance carrier agreed to pay $2.5 million to theplaintiff class in consideration of an unconditional release of all claimsagainst us and the individual defendants. Our only costs are certain legaldefense expenses incurred by us, which have been expensed as incurred. The soleremaining open issue - the amount of attorneys’ fees and expenses of litigationthe Court will permit plaintiffs’ counsel to recover from the agreed settlementproceeds - has no impact on us or our insurer. The Court’s order concludes ourinvolvement in this litigation and terminates the claims asserted in thislitigation as to all class members. We believe this resolution of thelitigation has no material adverse effect on our financial condition or resultsof operations.

 

Other than as set forth above or as previouslyreported in our Annual Report on Form 10-K/A for the fiscal year ended May 31,2007, as filed with the SEC on September 7, 2007, we are not currently subjectto any material legal proceedings, nor, to our knowledge, is any material legalproceeding threatened against us. However, from time to time, we may become aparty to certain legal proceedings in the ordinary course of business.Management does not believe any ongoing legal proceedings, including thosesummarized above, will have a material adverse effect on our consolidatedfinancial position.

 

**ITEM 1A. RiskFactors**

 

As noted in Part I, Item1A of our Annual Report on Form 10-K/A for the year ended May 31, 2007, asfiled with the SEC on September 7, 2007, in fiscal 2007 approximately 80% ofour revenues and 95% of our net income were generated from sales in NorthAmerica, and these results could be significantly and negatively impacted ifcurrent or new competitors increased their competition based on price, therebypotentially reducing our market share and gross margins. In September 2007 AlbaBioscience, a Scottish company with US operations in Durham, North Carolina,announced it had received US FDA clearance to market 15 monoclonal bloodgrouping reagents, including some not previously available in the US. If Albaenters the North American market, their entry, together with the expected entryof Biotest, Bio-Rad and others noted in our Annual Report on Form 10-K/A, wouldcreate additional competition.

 

There have been no othermaterial changes to the risk factors set forth in our Annual Report on Form10-K/A. In addition to the other information set forth in this report, youshould carefully consider the factors discussed in Part I, Item 1A, “RiskFactors” in our Annual Report on Form 10-K/A which could materially affect ourbusiness, financial condition or future results. The risks described in ourAnnual Report on Form 10-K/A are not the only risks facing our company.Additional risks and uncertainties not currently known to us or that wecurrently deem immaterial also may have a material adverse effect on ourbusiness, financial condition and/or operating results.

 

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**ITEM 2. UnregisteredSales of Equity Securities and Use of Proceeds**

 

TheCompany did not sell unregistered securities during the period covered by thisreport. The Company did not repurchase any shares of its common stock under itsstock repurchase program during the quarter ended August 31, 2007.

 

**ITEM 6. Exhibits**

 

The Company has filed thefollowing exhibits with this report:

 
| 3.1    | Amended and Restated  Articles of Incorporation (incorporated by reference to Exhibit 3.1 to  Immucor, Inc.’s Quarterly Report on Form 10-Q filed on January 5, 2007). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                        |
| 3.2    | Amended and Restated  Bylaws                                                                                                                                                |
|   |                                                                                                                                                                        |
| 31.1   | Certification of  Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                               |
|   |                                                                                                                                                                        |
| 31.2   | Certification of  Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*                                                                               |
|   |                                                                                                                                                                        |
| 32.1   | Certification of Chief  Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                       |
|   |                                                                                                                                                                        |
| 32.2   | Certification of Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                       |

 

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*                           Thecertifications contained in these exhibits are not “filed” for purposes ofSection 18 of the Exchange Act [15 U.S.C. 78r], or otherwise subject to theliability of that section. Such certifications will not be deemed to beincorporated by reference into any filing under the Securities Act or theExchange Act, except to the extent that the Company specifically incorporatesthem by reference.

 

SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   | IMMUCOR, INC.                                                 |
|--------|---------------------------------------------------------------|
|   |  (Registrant)                                            |
|   |                                                          |   |
|   |                                                          |   |
| Date:  | October 4, 2007                                               |   | By: | /s/ Dr. Gioacchino  DeChirico |   |
|   | Dr. Gioacchino  DeChirico, Chief Executive Officer            |
|   | (on behalf of  Registrant and as Principal Executive Officer) |
|   |                                                          |   |
|   |                                                          |   |
| Date:  | October 4, 2007                                               |   | By: | /s/ Patrick D. Waddy |   |
|   | Patrick D. Waddy, Chief  Financial Officer                    |
|   | (Principal Financial  and Accounting Officer)                 |
|        |                                                               |  |  |  |  |  |

 

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**EXHIBITINDEX**

 
| **Number** | ** ** | **Description**                                                                                       |
|------------|------------|-------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                  |
| 3.2        |       | Amended and Restated  Bylaws                                                                          |
|       |       |                                                                                                  |
| 31.1       |       | Certification of  Principal Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*         |
|       |       |                                                                                                  |
| 31.2       |       | Certification of  Principal Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a).*         |
|       |       |                                                                                                  |
| 32.1       |       | Certification of Chief  Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|       |       |                                                                                                  |
| 32.2       |       | Certification of Chief  Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |

 

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*                 Thecertifications contained in these exhibits are not “filed” for purposes ofSection 18 of the Exchange Act [15 U.S.C. 78r], or otherwise subject to theliability of that section. Such certifications will not be deemed to beincorporated by reference into any filing under the Securities Act or theExchange Act, except to the extent that the Company specifically incorporatesthem by reference.

 

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